INTERIM RESULTS PRESENTATION FOR THE HALF YEAR ENDED 31 DECEMBER 2017
AGENDA Strategic Milestones South Africa 01 V&A Waterfront Portfolio Update 02 GOZ Capital Management 03 Globalworth Financial Results 04 Conclusion 05 Annexures 06 Oxford Corner, Rosebank 2
STRATEGIC MILESTONES M1 Place, Eastgate, Sandton
Internationalisation ▪ Further EUR113.8m invested into GWI ▪ GWI acquisition of 71.7% of Griffin Premium RE (GPRE) STRATEGIC ▪ Romanian and Polish presence focused on the MILESTONES office and industrial sectors ▪ The contribution to the Group from offshore is 24.0% of the book value of the Group’s property assets and 19.6% of EBIT ▪ The strategy is to grow the offshore contribution to 30%, for both the above Optimising & Streamlining RSA Portfolio numbers, over three years. Requiring c. R10bn ▪ c. 5% of the RSA portfolio by value of additional capital investment assembled for sale in four portfolios and submitted to the market for expressions of interest with a deadline of 13 February 2018. We have received 23 offers from various parties, incl. BEE consortiums and property funds, which we are evaluating ▪ In line with our strategy to recycle capital, individual assets of c. R3.2bn have been sold but not yet transferred, post December 2017 incl. Investec Sandton, Hatfield Plaza and Turbine Square 4
Introducing New Revenue Streams Africa Fund ▪ USD210m committed for investment from Growthpoint and third parties, with first close scheduled for 31 March 2018 Healthcare Fund ▪ Five hospital assets valued at R2.4bn ▪ R275m committed from institutions, targeting c. R1.5bn for first close ▪ Awaiting the opportunity to present to the Investment Committees of many of the large pension funds; this is a lengthy process ▪ Further acquisition and development opportunities of c. R1.0bn in the pipeline 3 rd Party Development Fees and Trading Profits ▪ Good progress has been made with this element of the strategy given the skills, capacity and capital available Delivering on our strategic initiatives ▪ 1% - 2% of distributable income is expected to come from in line with our vision: development fees and trading profits going forward To be a leading international property company providing space to thrive 5
6.5% distribution growth from HY17 to 101.2 cents per share PERFORMANCE HIGHLIGHTS 4.4% increase in Group 10.6% increase in distributable property assets from FY17 income from HY17 to R2.9bn to R127.7bn 6
Group LTV down 3.9% increase in Group NAV 0.5% from FY17 from HY17 to 2 593 cents to 34.5% per share Group vacancies well contained at 4.6%, albeit they have increased 0.9% from FY17 7
PORTFOLIO UPDATE V&A Waterfront, Cape Town
PORTFOLIO UPDATE SOUTH AFRICA Key West, Krugersdorp
Domestic Economy & Property Market Remains Challenging SOUTH AFRICA ▪ Whilst sentiment has changed with President Ramaphosa’s victory, the operating environment remains very tough with lots of uncertainty ▪ We are still at the bottom of the property cycle ▪ Client retention is under pressure ▪ The lack of business confidence is translating into shorter lease terms generally, which means leases are reverting back to market more frequently ▪ It is costly to attract and retain tenants in a fiercely competitive environment where supply exceeds demand in all 3 sectors ▪ Arrears are generally under control and actively managed, as such they have decreased 7.5% to R76.6m vs. R82.8m at HY17, representing 7.8% of collectables vs. 8.8% at HY17 ▪ Vacancies at 5.2% have marginally increased from 4.4% at FY17 but remain below national benchmarks ▪ Over 500 000m² of space was let in the period 10
Retail ▪ We are seeing a slowdown in new supply, with Fourways Mall being the largest project currently under construction. With retailers reluctant to grow footprint, we are hopeful that this slowdown remains, as we believe there is excess capacity in the market ▪ Renewal success rate at 84.3% which is below our target of 90.0% ▪ The rate of deterioration in the renewal growth rate has been faster than expected, from 4.2% at HY17 to 3.2% at FY17 and currently 0.4%. This statistic was however negatively affected by defensive renewals at Bayside Mall, coupled with retailers consolidating space ▪ 1.3% portfolio average trading density growth, weighted by GLA, consistent with FY17 ▪ Vacancies improved from 3.6% at FY17 to 3.0% with the expectation that there will be a slight decline to FY18 ▪ Core retail vacancy, excluding unlettable ex-cinema and office space, constant at 1.5% ▪ Due to once off anomalies raised before half year end, arrears increased to R45m from R41m at HY17 and increased to 11.3% as a percentage of collectables from 10.7% over the same period. Arrears subsequently reduced to 10.0% in January 2018 ▪ We acquired the remaining 58% of N1 City Mall for R922m (8.0% yield) to further strengthen our exposure in the Western Cape which out performs other provinces ▪ Two retail assets were sold which were no longer considered core to the portfolio ▪ We are upgrading and reconfiguring space at Brooklyn and Walmer and are in advanced planning stages for extensions to Paarl and Waterfall Malls to address specific demand 11
Office ▪ The office sector is still weak but has generally not deteriorated further in the last six months ▪ High incentives are still the order of the day to attract and retain tenants ▪ The environment is hugely competitive with renewal success at c.47% for the period ▪ Clients remain reluctant to commit for long periods as is evidenced by the weighted average lease renewal period dropping below 3 years for the first time ▪ On a positive note, the historic negative reversion rates considered endemic for the sector are now flat to slightly positive ▪ Vacancies deteriorated from 6.8% at FY17 to 8.4%, mainly as a result of BCX vacating c. 13 000m² in Midrand ▪ Arrears are well contained at R15.3m vs R25.2m at HY17, representing 3.9% of collectables vs 6.5% at HY17 ▪ With a desire to keep our product relevant we have continued to develop as GDP has stagnated. We continue to see demand for new P grade green buildings in specific nodes incl. Cape Town, Rosebank, Bryanston, Sandton and Umhlanga ▪ 86 office buildings, valued at R18.7bn have been certified by GBCSA with the intention to have all long term investments certified by 2020 ▪ On the development side, Discovery was delivered on time and within budget, with the income positively impacting the second half of FY18 ▪ Asset management strategy focused on disposing of non-core properties, development of new P grade and green certified, well located buildings, whilst acquisition opportunities offering value remain in short supply ▪ In line with this strategy, two office properties were sold during the period, but not yet transferred, and none were acquired 12
Industrial ▪ The portfolio is diversified with a bias towards modern logistics warehouse facilities, with the majority of new developments focused on this asset type ▪ 11 assets were sold in the period that did not meet our long term investment strategy and one strategic asset was acquired ▪ Yield compression is evident, as the understanding of the asset class improves, along with the quality of the underlying assets ▪ Vacancies increased by 1% from FY17 to 4.1%. The stubborn c. 18 000m² vacancy at Paul Smit Anderbolt was let post HY18, bringing vacancies back to FY17 levels ▪ The renewal success rate has declined to 63.9% vs. 78.5% at FY17, with renewal growth now in negative territory at -2.5% vs. 2.3% at FY17. Renewal growth deteriorated as a result of three renewals totalling 25 700m² with a -4.3% drag on renewal growth ▪ The glut of industrial land, coupled with a development overhang is placing pressure on renewals ▪ Arrears are consistent with HY17 levels at R16m representing 9.4% of collectables vs. 10.0% at HY17 ▪ The weighted average lease period is in line with the market at 3.2 years ▪ Durban and Cape Town, with their access to the ports and limited supply of land, continue to perform well with vacancies virtually non-existent, low arrears and with real demand and growth ▪ We own strategic land parcels which we believe will offer good value in the future as our “convert the dirt” strategy continues focusing on distribution and logistics facilities between 5 000m² and 20 000m² ▪ We are cautiously optimistic that positive sentiment will start to translate into renewal growth, rental growth, reduced vacancies and longer lease periods 13
Western Cape Water Crisis ▪ 91 of the 463 RSA properties are located in the Western Cape ▪ Growthpoint’s main focus up until 2018 has been on the reduction of water consumption: − 41% for office − 27% for retail ▪ Our current focus is developing alternative water sources: − Retail will have operational boreholes by “Day Zero” across all sites − Within the industrial portfolio, we are focusing on sites where water is needed for production processes − Office properties have a mix of borehole and sump water available, which will be distributed via water tanks ▪ Other augmentation plans include: − Procurement of water from the Liesbeek River, with approval having been obtained − Installation of water purification plants where sump pumps yield substantial amounts of water − Atmospheric water generation − Procurement of water tankers to distribute alternatively sourced water ▪ Chemical toilets are being procured at sites without water security 14
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